A$ Sell-Off Intensifies

The A$ downtrend continued post the Asia close, tracking towards 0.6910, before we stabilized somewhat. We currently sit just under 0.6930. Only NOK has fallen more within the G10 FX space since the start of the week.

• Cross asset signals remain meaningful headwinds for the A$. Equities continued to plunge, while the VIX index got back to 34%, which is not too far off previous YTD highs.
• Commodities remain on the back foot. Copper has lost over 5.5% in the past 3 sessions, while iron ore is back to the $133/tonne handle, versus recent highs of +$145/tonne. Oil is holding up reasonably well, but this is just fueling stagflation fears.
• Yield spreads have moved sharply against the AUD, with Fed repricing driving a further 29bps rally in the US 2yr overnight (to 3.35%).
• There is data out today, but it is unlikely to move FX sentiment. We have the CBA household spending measure, along with NAB business confidence and conditions.
• From a technical standpoint, the pace of the sell-off saw the pair show below the 3.0% 10-dma envelope indicator for the first time since the onset of the COVID pandemic in 2020. This comes in around 0.6938. An extension lower would expose support at the bear trigger of 0.6829, May 12 low.
• 0.7000 could act as a headwind on any topside rebound.